Enforceability of Amendments to an Employment Contract – the need for “Fresh Consideration”
An employer may seek to amend the terms of its contractual relationship with an existing employee. Such modifications are often to the detriment of the employee and to the benefit of the employer. A common amendment is the insertion of a termination provision, reducing an employee's entitlements to severance upon a without cause termination, and usually to the minimal entitlements set out in the British Columbia Employment Standards Act. These amendments may be enforceable. However, a circumstance in which the amendments may not be enforceable is where the employer did not provide "fresh consideration" (i.e., something of value) to the employee for signing the second contract.
It is a basic principle of contract law that consideration between parties is required to create an enforceable contract. However, there has been a shifting of this principle, discussed in Rosas v. Toca, 2018 BCCA 191. Rosas concerned a series of informal arrangements to extend the deadline for repayment of a debt, to the point the limitation period on the original debt expired before an action was commenced to recover it. Chief Justice Bauman addressed the law of fresh consideration and stated at paragraph 183:
[183] … When parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns, which would render an otherwise valid term unenforceable. A variation supported by valid consideration may continue to be enforceable for that reason, but a lack of fresh consideration will no longer be determinative.
Chief Justice Bauman found that the variations concerning the loan repayment were enforceable, and held that the defendant was liable for the loan. However, this approach to consideration has not been adopted entirely in the context of employment law in British Columbia.
In Matijczak v Homewood Health Inc., 2021 BCSC 1658, Justice Verhoeven asserted the following, while referring to Court of Appeal judgements:
[30] While the law relating to the requirement for consideration in order to support amendments to an agreement may be in a state of flux, it appears that the law in BC continues to require consideration where an employer seeks to impose an amended employment agreement with significant modifications, detrimental to the employee: Singh v. Empire Life Insurance Co., 2002 BCCA 452 at para. 12. In Quach v. Mitrux Services Ltd. 2020 BCCA 25 at paras. 12-13, the Court of Appeal declined to interfere with the trial judge’s reliance on Singh, in the context of an employment case, notwithstanding the court’s decision in Rosas v. Toca, 2018 BCCA 191. In Ontario, see also Braiden v. La-Z-Boy Canada Ltd., 2008 ONCA 464 at para. 57.
Justice Verhoeven further noted at paragraph 31 that the requirement of consideration to support an amended agreement is especially important in the employment context, where there is an inequality of bargaining power, and particularly in the circumstances of an amendment to an existing contract, where the employee is more vulnerable, due to being dependent on the pay from their continued employment.
Therefore, if you are an employer or employee and are concerned with the validity or implementation of amendments to an employment contract, you may want to contact us for an opinion.